Thursday, July 09, 2015

College Tuition Rising : Students Loans Costs Rising

It seems we continually come back to this subject of the cost of education and it's economic worth for the student after the costs to gain a degree are added into mix. Colleges and universities understand if there is a bottomless pit of money coming from the federal government that now is in control of student loans and in debt to more then $1.2 trillion dollars, little wonder then the system is flawed and corrupt. 

And given that most degrees are economically worthless as foundations for earning a good living after graduation, it sure doesn't make much sense to accept a huge debt along with a worthless degree as a consequence of get a higher education that the student believed would be beneficial to future earnings.

For most students, it seems this is a lose lose situation, and yet millions take the plunge. Is it the ignorance of the consequences for making bad decisions early on, or just being to unconcerned for one's future. Is this the new norm where no matter how bad the consequences are for poor decisions there will always be someone else to take the blame for failure, and someone else to save them from financial ruin.

Does this mean taxpayers will pick up the tab? Of course.

Credit Supply and the Rise in College Tuition
Source: David O. Lucca, "Credit Supply and the Rise in College Tuition," Federal Reserve Bank of New York, July 2015.

July 8, 2015

When students fund their education through loans, changes in student borrowing and tuition are interlinked. Higher tuition costs raise loan demand, but loan supply also affects tuition costs, according to a study from the Federal Reserve Bank of New York. Student loans, much like housing finance, are often originated through government-sponsored programs, and these originations have been growing at a very sharp pace.
  • Yearly student loan originations grew from $53 billion to $120 billion between 2001 and 2012 occurring through federal student aid programs
  • Average sticker tuition rose 46 percent between 2001 and 2012, from $6,950 to $10,200.
Exploding tuition costs and loan balances in recent years have similarly attracted much policy attention. Changes in aid caps occurred between 2008 and 2010 and affected about 25 percent of all subsidized borrowers.

Institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent

If students attending institutions that rely heavily on federal aid could only do so because of the existence of these aid programs, then joint increases in enrollments and per-student aid at these more-dependent institutions may have only taken place thanks to their existence. As a result, these institutions also experienced higher growth in sticker tuition, although these effects are not very significant.

From a welfare perspective, these estimates suggest that while one would expect a student aid expansion to benefit recipients, the subsidized loan expansion could have been to their detriment, on net, because of the sizable and offsetting tuition effect.

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